Analyst Insight: Food and beverage companies lag consumer packaged goods companies in corporate performance. With rising raw materials costs and volatility, coupled with increased compliance for food safety, they are facing greater change and increased risk. As they move into 2014, their supply chains are not as mature and their challenges are greater. - Lora Cecere, CEO and Founder, Supply Chain Insights

The challenges are many and mounting. They include: rising commodity prices; growing complexity; increased compliance and legislation; and growth of generic products and greater competition from traditional retail. The challenges go on and on "¦ It is time for food and beverage companies to rethink their supply chains and drive differentiation. Based on our research, we find that there are five steps to take now:

"¢ Disintermediate and Maximize the Use of E-commerce. Today, 2 to 5 percent of food manufacturers' products are moving through e-commerce directly to consumers. This will grow. Use this new channel to build consumer loyalty and test and learn. With demand latency less than one day, use the e-commerce signal as an early indicator of demand to reduce slow-moving inventory and maximize new product launch.

"¢ Use Corporate Sustainability as a Corporate Differentiator. There is a natural synergy between food manufacturing and agriculture and the redefinition of the supply network to both win in the market and improve the planet. It worked for Wells Dairy and Starbucks. As a result, more and more companies are learning that they need to own the entire supply chain and help growers be both more productive and profitable while being more sustainable. They can no longer outsource the supply side of the supply chain. As a result, the supply chains are becoming more integral to the success of the food manufacturer's supply chain success.

"¢ Orchestrate Demand and Supply. Over 50 percent of trade promotions are based on history with no recognition of commodity prices. This is too big of a risk to the food manufacturing company. As a result, more and more companies are starting to orchestrate demand and supply decisions synchronizing demand shaping actions with commodity strategies and mitigating risks while maximizing opportunities. This is the most successful when the processes of revenue management, sales and operations planning and supplier development are orchestrated end to end by a center of excellence.

"¢ Automate Digital Path to Purchase and Digital Manufacturing. New technologies are enabling the rethinking of manufacturing and the path to purchase. Both shifts in technology enable the use of the Internet of Things, new forms of analytics and sensing technologies. The goals are to better sense demand and translate the demand signal into a manufacturing output to minimize waste. New technologies offer great opportunity.

"¢ Food Compliance. Food safety and the ownership of the entire supply chain will soon be legislated. Companies that design end to end will have an advantage.

In 2014, the requirements for food and beverage companies will grow with supply chain excellence being a requirement for success. The differences between food and beverage and consumer packaged goods companies will grow.

The Outlook

The shifts and drivers in the food and beverage supply chain are not trivial. They are here to stay. It requires a redesign of conventional supply chain practices. For a few, it will drive differentiation and growth, but for some, the inability to change will define a market failure. Supply chain excellence matters more and more. In 2014, we expect to see these stories on the front page of the Wall Street Journal.